The Oriental Bank Corporation vs The Baree Tea Company, Limited on 18 March, 1883

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Calcutta High Court
The Oriental Bank Corporation vs The Baree Tea Company, Limited on 18 March, 1883
Equivalent citations: (1883) ILR 9 Cal 880
Author: R Garth
Bench: R Garth, Cunningham


Richard Garth, C.J.

1. In these cases I entirely agree with the Court below, and upon the same grounds.

2. Both suits were brought to recover the amount of certain bills of exchange from the defendants Company, which bills, it was alleged, had been drawn by Messrs. Nicholls & Co., upon, and accepted by themselves as the defendants’ Agents, and endorsed by Nicholls & Co. to the plaintiffs Bank.

3. Messrs. Nicholls & Co., were undoubtedly the Managing Agents of the defendants Company and by the Articles of Association they were empowered as such Agents “to draw, accept, endorse, and negotiate on behalf of the Company all such cheques, promissory notes, drafts, etc., as should be necessary for enabling them to carry on the business of the Company.”

4. The bills in question were drawn by Nicholls & Co., upon the Managing Agents of the Baree Tea Company; they were accepted by Nicholls & Co., under the description “Managing Agents of the Baree Tea Company.” They were payable to the order of Nicholls & Co., and endorsed by Nicholls & Co. to the plaintiffs Bank.

5. These bills were given in renewal of certain other bills, which were in a similar form, and the origin of them all was a bill for Rs. 15,000, dated the 22nd of April 1880, drawn, accepted, and endorsed in the same way. The question whether the plaintiffs can succeed in these suits admittedly depends upon whether they could have successfully sued the defendants upon the last mentioned bill.

6. The defendants take two principal objections to the suit: first they say, that the bills were not accepted in such a form as to bind the defendants; and secondly, that as a matter of fact, the bill for Rs. 15,000 was not drawn or accepted for the purposes of the Company, and that it was not necessary for Nicholls & Co., to accept that bill to enable them to carry on the business of the Company.

7. I agree with the learned Judge in the Court below, that it is not necessary to consider the first of these points, because I think that upon the plaintiffs’ own evidence, the second point should be decided in the defendants’ favour.

8. The question appears to me to be one of fact. Was the bill for Rs. 15,000 drawn and accepted for the purposes of the Company? Or can we say upon the evidence that it was necessary for carrying on the business of the defendants’ Company that the bill should have been negotiated?

9. Now the relations between the plaintiffs and Nicholls & Co. at the time when the bill was drawn were as follows: The plaintiffs were the private bankers of Nicholls & Co., who kept a current account there. The plaintiffs were in the habit of allowing Nicholls & Co., to overdraw their account, sometimes to a considerable amount; and the latter had deposited with the plaintiffs Government securities to cover those overdrafts to the amount of Rs. 26,000.

10. Nicholls & Co., were at this time engaged in a great variety of business transactions, and on the 22nd of April 1880 they had overdrawn their account with the plaintiffs to the amount of Rs. 23,560. A few days previously the balance against them had been Rs. 36,000.

11. In this state of things Mr. Harper, the Manager of the Bank, tells us that Mr. Nicholls (of the firm of Messrs. Nichols & Co.) stated to him that his firm wanted money to carry on the Baree Tea Gardens, and that they proposed to do, (what they had done before on more than one occasion) namely, to draw a bill upon themselves as Agents for the defendant Company in the form in which these bills wore drawn, and then to accept and endorse it to the Bank. To this Mr. Harper assented, and the bill for Rs. 15,000 was negotiated. No money passed between them upon the transaction, but the bill was entered in the usual way in the plaintiffs’ bill book, and Nicholls & Co., were credited in their current account with the plaintiffs with the amount of the bills, less discount.

12. It is perfectly true, that after this transaction moneys were from time to time drawn out of the plaintiffs’ Bank by Nicholls & Co., which it is probable that the Bank would not have allowed them to draw, but for the fact of the proceeds of this bill having been placed to their credit. But it has not been shown, that any of these sums were required for or expended upon the defendants’ Tea Garden, or were otherwise used for the purposes of the defendants’ Company.

13. The direct and immediate effect of the transaction, as the Bank well knew, was simply this: to reduce the balance due to them by Nicholls & Co., in their private current account by the sum of Rs. 15,000 less discount; and if Nicholls & Co., had failed the next day, as indeed they did not long after-wards, the effect of the transaction would only have been to pay off the private debt to the Bank of Nicholls & Co., and the defendants’ Company could have derived from it no benefit whatever.

14. Even if the Rs. 15,000 had been paid into the hands of Nicholls & Co., instead of being applied by the plaintiff’s in discharge of Nicholls & Co.’s private debt to them, I much doubt whether the defendants would be liable to pay the amount of the bills, unless it could be shown, which it certainly has not been in this suit, that the money was really required for the purposes of the defendants’ Company. If the defendants could be fixed with liability to the Bank, by Nicholls and Co., by merely informing the Bank that they required money for carrying on the defendants’ gardens, it seems to me, that it would have been in the power of Nicholls and Co., to raise any sum of money they pleased upon the defendants’ credit, without applying, or intending to apply, a single rupee of it for the defendants’ benefit.

15. I entirely agree with the lower Court that the defendants are not liable upon the bills in question, and I think that these appeals should be dismissed with costs on scale 2.

Cunningham, J.

16. I concur in dismissing these appeals. The question on which the case depends is, whether the circumstances under which the bill for Rs. 15,000 was given to the Bank were such as to entitle the Bank to look to any one but Nicholls and Co., for their satisfaction. I think that the Court below rightly held that the Bank could hold no one but Nicholls and Co., responsible. Nicholls and Co., were in the habit of advancing funds for the Baree Tea Company, of which they were Agents. These advances were made from their general balance at the Oriental Bank, and this balance was kept up by large overdrafts, partially secured, which the Bank allowed Nicholls and Co. to make. It was also kept up by the proceeds of bills, which Nicholls and Co. drew on the Company, and themselves accepted as Agents to the Company. These bills were discounted by the Bank, and the proceeds went to reduce Nicholls and Co.’s overdrawn account. It is true that Mr. Harper says that Mr. Nicholls told him on one occasion when a bill was thus discounted, that the money was required for carrying on the Baree Tea Company, and that his firm had made advances to the Company; and on the occasion when the bill for Rs. 15,000 was given, he said “that he wanted another discount to carry on the Baree Tea Gardens.” That, thereupon, the bill was discounted, and the proceeds placed to Nicholls and Co.’s credit; but I do not think that this justifies the Bank in holding the Baree Tea Company responsible, or that a bill so drawn and so employed could be properly regarded as falling within the scope of Article 56 of the Company’s Articles. That article empowers the Agents “to draw, accept endorse, and negotiate on behalf of the Company, all such cheques, promissory notes, hoondies, drafts, Government and other securities as shall be necessary for enabling them to carry on the business of the Company.” I do not think that this empowered them to accept bills drawn on the Company with a view that the proceeds should be placed to their general account, and that from that general account advances should be, from time to time, made to the Company. The arrangement had the effect, as my Lord has pointed out, of exposing the Company to lose the entire benefit of the bill in case of Nicholls and Co.’s failing before any further advances were made by them to the Company. Article 56 does not, in my opinion, contemplate any such arrangement, but merely the drawing and accepting of bills in the ordinary transaction of the Company’s business.

17. The case of Gray v. Johnston L.R. 3 H.L. 1 has been much insisted on as justifying the appellants’ contention; but that case merely defined the circumstances which will justify a bank in refusing to honor a customer’s cheque, that customer being an executor. In fact, Lord WESTBURY’S remarks seems to me to go strongly against the Bank. “It has been very well settled, that if an executor or trustee, who is indebted to a banker, or to another person, having the legal custody of the assests of a trust estate, applies a portion of them in the payment of his own debt to the individual having that custody, the individual receiving the debt has at once not only abundant proof of the breach of trust, but participates in it for his own personal benefit.”

18. In the present instance, when the bill was discounted, the Bank was in custody of funds which Nicholls and Co. held to the Bank’s knowledge in trust for the Company; and being so in custody, it received partial payment of its own debt from Nicholls and Co. out of those funds, and thus it seems to me, fell within the scope of Lord WESTBURY’S remarks.

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